2

I bought a home that costs $100,000 and it’s worth $200,000 but I still owe $50,000 on it how much equity do I have on the home?

3 Answers 3

14

Home equity is the value of the home minus what you owe on your mortgages.

In your case equity is

Equity =   Value    - Mortgage
Equity =   $200,000 - $50,000
Equity =   $150,000

Now if you are trying to tap into that equity by getting a 2nd mortgage or home equity loan keep in mind that the bank won't allow you to tap into all that equity. Also selling the house comes with costs, so you won't have $150,000 in cash if you were to sell the house today.

4
  • 6
    And the house might not actually sell for $200K.
    – RonJohn
    Commented Jun 4, 2021 at 14:04
  • 6
    @RonJohn: If it can't sell for $200K within a reasonable time, then it isn't worth $200K. The OP says that it is.
    – Ben Voigt
    Commented Jun 4, 2021 at 21:48
  • @BenVoigt I don't think what I wrote contradicts your comment. In fact, you're saying the exact same thing.
    – RonJohn
    Commented Jun 4, 2021 at 22:42
  • @RonJohn he means your comment doesn't add substance beyond the known facts of the OP. Also, value in that regard is determined by a property valuer.
    – Ofer Zelig
    Commented Jun 7, 2021 at 5:53
3

Equity = Value - Debt

So, equity is $150k in your example.

Appreciation = Value - Purchase Price

Appreciation is $100k in your example.

Capital Gain (when you sell) = Sales price - purchase price - depreciation.

2
  • +1 for also marking where purchase price comes in
    – obscurans
    Commented Jun 5, 2021 at 9:47
  • how is depreciation defined in this?
    – njzk2
    Commented Jun 5, 2021 at 22:40
0

Think of it this way. When you bought the house originally for $100,000, let's say you put in $10,000 of yours and got a loan of $90,000 from the bank. So you began with $10,000 of your own money i.e. equity i.e the cushion against market for the bank.

'Equity' is the residual interest after the charges are paid off. Now, when you finance your purchase using a loan, you enter a contract to pay a stream of cashflows to the bank and yes, some interest. While the asset is in your name, there is still a fixed charge of $50,000, without discharging the said charge, you wouldn't have a clear title.

So, in layman's terms, your equity is the $ you are left with after you discharge your obligation to the bank. In your case, if your valuation is correct, that would be $200,000 - $50,000 - prepayment penalty = $150,000 - prepayment penalty.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .